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America's Resilient Economy.

The American economy is powerful, and resilient, both as a rule, and today specifically. And we will make it through Katrina without a recession. Bank on that.

Let's take a look at some of the pre-Katrina data, for perspective on just how much it would take to derail the economy.

JOBS-

In the wake of Hurricane Katrina, another solid growth number came in, with little or no notice, other than from some bloggers here and there.

America's unemployment rate fell to 4.9% last month, having added 169,000 net new jobs in August (July job gains were also revised upward).

Indeed, more Americans are working than ever before.

Not surprisingly, jobless claims are also significantly down in recent years.

More than 4.1 million net new jobs have been created in America in the past couple of years.

Meanwhile, the Labor Department's Household Survey, which better measures self-employed entrepreneuers and small business activity, indicates even stronger job growth since 2003 than the Payroll Survey:

The unemployment rate is not at all-time lows, but it could get there in a hurry at the rate we're going.

If 4.9% unemployment is evidence of a terrible economy, I can hardly imagine what double digit unemployment (in socialist-lite countries like Germany and France) would mean.

No matter how you cut it, America's job situation has improved markedly in the past 27 months.

GDP-

Gross Domestic Product continues to grow at a robust pace. Think about how significant this is. Our economy is already so much larger than any other, yet it continues growing at a faster rate than nearly every other "Western" country.

HOME SALES-

The housing market just continues its atmospheric growth.

Both new and existing homes continue to sell like hotcakes. And more Americans own their own homes than ever before.

Meanwhile, developers continue to build new homes, because there is such a persistently high demand for them.

ENERGY-

In the wake of Katrina, many feared 100 dollar oil, due to the Gulf Coast's pivotal role in meeting America's energy needs.

However, because of the President's swift leadership in releasing millions of barrels from the Strategic Petroleum Reserve, the price of a barrel of oil has actually fallen below pre-Katrina levels. The stabilization of energy prices is good news.

Katrina's Effects-

Katrina will hurt. And hurt a lot. There's no doubt about that. In addition to the staggering loss of life, losing New Orleans will mean the loss of property, of employment, and of Gross Domestic Product.

In an 11 trillion dollar (and growing) economy, though, Hurricane Katrina will not derail the progress the United States economy has made over the past 2 or 3 years. Our economy is simply too mighty for the R-word ("recession") to be in the cards. Unless we let it do so.

If we fail to repeal the death tax, or actually RAISE taxes, as some liberals are now demanding, we will turn Katrina into a true economic disaster. If tax relief, which freed the overburdened American engine of commerce from its shackles, was responsible for making America's last recession more brief-- and more shallow-- and was responsible for getting America's economy moving in the right direction (and it was largely responsible), then why on earth would we raise taxes, throwing the shackles restraining commerce right back on?

If we have a Gold-Medal Olympic athlete (the American economy) with a torn ACL (Katrina), do we cut out the other ACL (tax hikes) in order to replace the torn one?

No. That is ridiculous.

We heal the torn ACL, while applying therapy to keep the rest of the world-class muscles from experiencing atrophy during recovery. If we apply the right therapy, the body ends up as strong-- or stronger-- than it might have been to begin with.

Tax free empowerment zones, which Newt Gingrich and Jack Kemp have talked about quite a bit in recent days, could help get New Orleans (and the rest of the Upper Gulf Coast) back on track. We need school choice vouchers. We need to suspend gas taxes and other fees. We need to apply pro-growth therapy to the region.

While Katrina is a sucker punch to the gut of America's economy, there is very little prospect for the kind of catastrophic long-term damage it might have done to a lesser economy. 1998's Hurricane Mitch comes to mind:

...Hurricane Mitch devastated several countries in Central America. In Guatemala, Honduras, Nicaragua and El Salvador, the countries that suffered the greatest damage, 10,500 people died and close to another 10,000 disappeared. Overall, some seven million people were affected by Mitch.

In addition to the tremendous human tragedy, the hurricane was a genuine economic disaster for the region. "The GDP fell by approximately 20%," notes Martínez Lázaro. "The economic impact is much greater on small countries," he adds, comparing the impact of Mitch with the impact of Hurricane Katrina in the United States. While Katrina hit the Gulf coast area hard, "Mitch destroyed the economies of all those countries in every sector, not just in tourism. It was total and comprehensive, and it also led to an enormous wave of emigration." Furthermore, the U.S. "will be able to rebuild the devastated zones while Central America, in contrast, relied entirely on foreign aid. In the U.S., there will be refugees, but the people who have been displaced will be going back to their houses sooner or later. Katrina will not produce the same wave of emigration that occurred in Central America."

While Americans might feel impotent or helpless or that we're no better than a third world country, it is unlikely nearly any other country on earth could have responded as swiftly and overwhelmingly as the U.S. has, without the complete annihilation of commerce elsewhere. We will not see 20% of our GDP erased because of this tragedy.

It is also important to note that the U.S. has been hit by other high-magnitude hurricanes in the past. Hard. But we responded just fine:

There are several examples that indicate the gloom-and-doom scenarios won’t occur. For example, in August 1992 after Hurricane Andrew decimated Southern Florida, the media strongly suggested that this disaster would not only mean a poor employment picture in that area for many months, but also a weakened national economy.

Look at how wrong they were:

* Florida’s unemployment rate in August 1992 before Andrew hit was 8.9 percent. Twelve months later, it had plummeted to 7.2 percent as the state added 173,000 jobs.
* Nationally, 2.3 million non-farm jobs were created in the 12 months following Hurricane Andrew, dropping the unemployment rate from 7.6 percent to 6.8 percent.
* Despite all the gloomy predictions, the Gross Domestic Product grew by 4 percent in the 3rd quarter of 1992, and a vigorous 4.5 percent in that year’s 4th quarter.

But Katrina is not just any hurricane. Because of the lingering flood water in New Orleans and the total destruction of communities in Mississippi, there is no quick "Home Depot Effect" that will paradoxically generate jobs and commerce. But there will be in time. It is also unlike other hurricanes, in that it has dominated the national consciousness for nearly two weeks. This "news addition" ("TV shock") effect, with people glued to their televisions for the latest live updates, can have deleterious effects on consumer spending, as we saw after 9/11.

If the next few months of job numbers, GDP numbers, and other economic indicators lag, don't allow the hysteria about a looming recession to get the best of you. This economy is far too resilient. Even if the economic costs total 200 billion dollars or more, in an 11+ trillion dollar economy, we will survive. And we will rebuild. And our economy will be even stronger than it otherwise would have been.

Posted by Will Franklin · 9 September 2005 06:48 PM

Comments

Posted by: Zsa Zsa at September 9, 2005 08:27 PM

Posted by: Giacomo at September 10, 2005 07:54 PM

Posted by: Dean Munson at September 22, 2005 01:27 PM